A contract is legally defined as an agreement, or undertaking between two or more parties, for the doing or the not doing of some particular thing. In order to be perfectly valid and binding, a contract must conform to certain legal requirements as to parties, subject matter, consideration and mutual understanding, and these requirements are known as the requisites of a valid contract. For instance, there must be more than one party to a contract, for it is obvious that a party cannot enter into an agreement with himself, either as an individual, or as individual as one party and as representative of another as the other party. Further both or all the parties to a contract must be legally capable of entering into a contract. A minor, a lunatic or the principal of an agent, not authorized to act in such a capacity, is not responsible for debts contracted, therefore none of them could be parties to a contract. On the other hand, a legally appointed guardian for a lunatic or infant, or the duly accredited official of a municipality or corporation, is capable of becoming a party to a contract, for and in the stead of his principal, who then becomes legally responsible.

Again, it is conceivable that an agreement cannot be entered into between two or more persons without there is a subject matter. That is, something for the contracting parties to do, or not to do. For instance, a plumber might undertake to install the plumbing in a certain building,' in which case the subject matter calls for the performance of work and furnishing of material. On the other hand, the plumber, having purchased property in a residence section, with the intention of erecting a shop thereon, might contract with his neighbors not to use the premises as business property, in which case the subject matter would call for the non-performance of a certain thing.

The third requisite of a valid contract is consideration. That is something given by one of the contracting parties for the work performed or money paid by the other. When a plumber undertakes to install the plumbing in a building for an owner, he performs the work for the money, or consideration, paid him by the owner. On the other hand, the consideration for the owner is the work performed and material furnished for the contract price. If a contract called for the plumber to furnish all material and labor and no consideration were expressed, that is, no provision made according to the terms of the contract to pay him for his trouble and outlay, the contract would be void, and the courts would not enforce it for lack of consideration. Sometimes, however, contracts are drawn, in which only a nominal consideration is expressed. That is, the contract stipulates: "In consideration of One Dollar and other valuable considerations in hand paid, the receipt of which is hereby acknowledged, etc." In such cases there is an expressed consideration, and even though the one dollar in hand paid might seem inadequate, the contract is nevertheless valid, for there is a consideration.

The final requisite of a valid contract is known as assent of the parties, but may be more clearly expressed as mutual understanding of the terms. This means that both parties must have in mind the same subject matter when the terms of the contract are made. For example, suppose an owner had an eight-story apartment house on one corner of a block, and a four-story apartment on another. The owner in the negotiation has in mind the eight-story building while the plumber has in mind the four-story structure. In that event, there is no mutual understanding, therefore there can be no agreement of minds on the terms, consequently, the contract which attempts to express the agreement is void.